McAfee Analysts See Consumer Business At Attractive Price, Enterprise Business At Discount

Two analysts see upside in the recent IPO and cybersecurity company McAfee thanks to its strong presence in the consumer security market and upside from its enterprise business.

McAfee went public in October and priced shares at $20. Shares opened below the IPO price and have not traded to their IPO level yet.

The McAfee Analysts: Morgan Stanley analyst Hamza Fodderwala initiated coverage of McAfee Corp MCFE with an Overweight rating and $25 price target. 
Goldman Sachs analyst Brian Essex initiated coverage of McAfee with a Buy rating and $26 price target.

Related Link: Benzinga’s Top Upgrades, Downgrades for November 16, 2020

The McAfee Takeaways: McAfee could see durable consumer revenue growth through 2022, Fodderwala said in a note.

Operating margins near 50% could generate $1 billion in consumer EBITDA by fiscal 2022, the analyst said. 

McAfee has multiple ways to realize value with durable recurring revenue from its security business, he said. 

McAfee has 17 million direct paying subscribers and a 30-year history of providing cybersecurity solutions to Fortune 500 companies, which Fodderwala said is a key advantage.

Upside For Enterprise Business: Fodderwala said the enterprise business holds potential upside for McAfee’s stock with its integrated security platform.

“Investors are ascribing negative value to a stable $300M+ enterprise EBITDA business,” the analyst said. 

Goldman's Essex uses a sum-of-the-parts analysis to show the enterprise business is undervalued.

Applying a 14x EV/EBITDA multiple yields an implied value of $19 per share when excluding McAfee’s enterprise EBITDA.

“Investors have the ability to invest in McAfee’s best-in-class consumer business at an attractive price, while getting the enterprise business at a steep discount,” the analyst said. 

The enterprise business is well-positioned with its exposure to “several of the most significant emerging growth segments in the market,” Essex said. 

What’s Next: McAfee reports third-quarter earnings Nov. 19. Fodderwala said the keys for investors to focus on for are direct-to-consumer subscribers, total billings, enterprise revenue and the EBITDA margin.
“We see potential for upside as we expect the stable, mid-single digit growth company with expanding margins and robust cash flow to generate meaningful shareholder value,” Essex said.

MCFE Price Action: Shares of McAfee were up 1.11% at $17.35 at last check Monday.